Where The Outcome Economy Is Taking Us In 2016 And Beyond

You’ve probably heard of the Sharing Economy, the term that’s been applied to peer-to-peer service based businesses like Uber. But there’s another sort of economy (in some ways related to the sharing economy) that is probably more important and more relevant to your business: the Outcome Economy.

What Is the Outcome Economy?

At its most fundamental level, the Outcome Economy is just the reflection of a simple truth: when people buy things (especially in the enterprise), they don’t want so much a product, rather they want an outcome. The term “Outcome Economy” refers to the shift towards selling customers an outcome—the measurable results that they’re looking for—rather than simply selling them a product that helps them achieve that outcome.

This is not a new idea. It has been around since at least the 1980s, and was probably best summarized by American economist and Harvard Business School professor Theodore Leavitt, who famously said: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.”

But although the idea has been around for longer than most people realize, it has historically been an ideology that’s difficult to apply in many industries. You can’t sell clients the outcome they want unless you have two things in place: (1) you know the outcome they want and (2) you’ve got the technology and data access that’s needed to achieve that outcome. Until recently, this has been difficult to accomplish.

Consider, for example, an evening at a comedy club. When someone buys a ticket to a comedy show, the outcome they’re actually trying to purchase is their own laughter. But that’s not the product that’s being sold. At most comedy clubs, you buy a ticket beforehand, and then you either enjoy or endure the show, depending on how it goes. Whether you laugh—whether you got the outcome you wanted—isn’t factored into the price or the purchase experience at all.

Increasingly, though, modern technology and big data solutions are allowing businesses that previously couldn’t realistically sell outcomes to do just that. This is even possible in comedy: the Teatreneu club in Spain uses facial recognition to detect how many times audience members laugh and then charges them per laugh (with a cap), rather than charging them any kind of ticket or entry fee.

In other words, the Teatreneu club is selling customers the actual outcome they want (laughter) rather than just a product that hopefully helps them achieve that outcome (a pre-show ticket). That’s the Outcome Economy at work. And with technological advances and an ever-increasing amount of data that machines can access, more and more businesses will embrace the Outcome Economy as time goes on. It’s likely that in the next five to ten years, many businesses will be embracing the Outcome Economy, or similar outcome-based sales tactics.

What Does This Mean for Consumers?

For consumers, the rise of the Outcome Economy is going to herald a lot of changes. First and foremost, it should help them get more value for their money by giving them more direct access to the outcomes they desire.

This is happening already. Fitness trackers, for example, are typically marketed as outcomes rather than products. Most consumers have no innate desire to wear an oddly-shaped plastic band on their wrist, but the Fitbit sells anyway because it offers customers the outcome they’re looking for:  a way to track and improve that specific consumer’s fitness. Even ten years ago, the best a fitness company could realistically do would be to offer customers some workout tools and hope that people followed through.

But today, smart data-powered gadgets can do everything from reminding people that it’s time for their daily workout to crunching their workout and caloric intake numbers and helping them set a goal-appropriate diet and exercise program. The Fitbit still can’t force you to work out, of course, but it can get you a lot closer to your desired outcome more easily than a set of dumbbells can.

True, products like the Fitbit are still paid for with the old cash-for-gadget model, but as the technology develops further, it’s likely that we’ll see more companies embrace a results based model where users might (continuing with the fitness example) pay a small fee for every pound a fitness app helps them lose.

For privacy-conscious consumers, this isn’t necessarily all good news. The technology needed to effectively sell outcomes often requires immense amounts of data tracking. Returning to the laugh-tracking comedy club, for example, that model does ensure customers only pay full price if they’ve had a good time, but it also gives the club a ton of data about them. If it wanted to, the club could do some analysis of which customers laughed at which jokes and use that data for targeted marketing, or sell it to third parties.

Consumers can probably expect marketing to become more effective as the era of big data continues and more companies embrace an outcome-based sales approach, since the pitches they’ll be getting will be focused on things they’re actually interested in achieving. But there’s a thin line between convenience and creepiness when it comes to tracking users’ desires, and as those techniques becomes more common and gets more effective, they’re likely to turn some users off.

What Will It Mean for Your Business?

For businesses, the rise of the Outcome Economy will be a boon to those who embrace it effectively. But leveraging the Outcome Economy will, for most businesses, require integrating a number of different technologies, analyzing large amounts of data quickly and effectively, and knowing how to turn that data into actionable marketing campaigns or services.

First, you’ll need to know what outcomes your customers actually want. This is rarely as simple as it seems. At a restaurant, for example, is the outcome customers are looking for satiated hunger? Is it tasting delicious foods? Experiencing an enjoyable evening in a pleasant atmosphere? It could be any, all, or none of those. Before you can effectively sell outcomes to customers, you need to know what outcomes they want, and that may well require implementing new technological solutions and/or third-party data sources that help you track their behavior and activities so that you can get insight into their desires.

That, in turn, could mean you’ll need to develop entirely new software or forge new partnerships with third-party providers to ensure that you’re getting all of the information you need to market to customers and all of the information you need to provide them with the outcome they want.

Apps like Uber and Lyft, for example, offer customers an outcome (a quick arrival at their destination) rather than a product that helps them achieve that outcome (a car). But getting to that point required them to form partnerships with and integrate the technology of mapping companies, develop their own technology to track traffic, adjust fare rates, and regulate ride supply and demand, and effectively collect and analyze data to improve internal efficiency.

Ultimately, the Outcome Economy should be a good thing for both consumers and businesses, because it makes it easier for businesses to sell consumers what they actually want. Getting to that point, however, requires businesses to navigate some difficult technological and sometimes even ethical questions about user tracking. Consumers, for their part, will also have to decide how much tracking they’re willing to accept in the name of being able to directly purchase any outcome they desire.